Testing for Day-of-the Week Effects in Equity Returns Gauss file(s) garch_seasonality.g, equity.xlsx Matlab file(s) garch_seasonality.m, equity.mat Use the same data as for Exercise 1.

(a) Consider the GARCH(1,1) model yt = ut , ut ∼ N(0, σ2 t ) σ 2 t = α0 + α1u 2 t−1 + β1σ 2 t−1 + λ1T UEt + λ2W EDt + λ3T HURt + λ4F RIt , where yt is the zero-mean percentage return on the FTSE. Perform a LR test of seasonality.

(b) Extend the variance to include a holiday dummy variable, and perform a joint test of day-of-the-week and holiday effects.

(c) Repeat parts

(a) and

(b) for the DOW and the NIKKEI.